JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Wednesday, 16 Nov 2005

Commission for Energy Regulation: Presentation.

Chairman

I welcome Mr. Tom Reeves, Ms Regina Finn, and Mr. Michael Tutty from the Commission for Energy Regulation, CER. I apologise that some committee members are involved in the Order of Business and others are on another committee. However, it is important we get the CER view on energy policy. We have engaged with the commission on different occasions over recent months. We are now coming to the end of the public presentations on this issue and will be in a position to develop and finalise our draft report within the next ten to 14 weeks.

Before I ask Mr. Reeves to begin, I advise everyone that we will have a short presentation which will be followed by a question and answer session. All mobile phones should now be switched off. I draw everyone's attention to the fact that members of this committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment upon, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I thank Mr. Reeves for sending his submission and I invite him to begin the presentation.

Mr. Tom Reeves

We are pleased to accept the committee's invitation. The letter of invitation listed about ten topics. We decided to choose four topics but we are quite willing to discuss any issues the committee wishes to raise with us. We will touch on renewable energy, interconnection, security supply and the all-island market. Ms Regina Finn will begin with renewable energy, Mr. Michael Tutty will deal with the interconnection and I will deal with security of supply.

Chairman

I ask the delegation to have regard to the concern of members about the deficit in the roll-out of our gas pipeline to the north-eastern part of our country. This is a matter of great concern to the members of this committee and to Members of the Oireachtas in general. The committee heard a presentation yesterday from Ballina Chamber of Commerce. I understand it sent its report to the CER. The delegation may be able to respond to other matters which I will raise later in the meeting.

Mr. Reeves

We will deal with all matters. I will ask Ms Finn to begin the presentation.

Ms Regina Finn

I appreciate the committee is looking at a wide range of issues and it has received presentations from a number of delegations. I will deal with the current regulatory issues to do with renewable energy rather than the broader issues but we can answer questions afterwards.

The context in which the CER's regulation of renewable energy takes place is around the benefits that renewable energy brings. The purpose of renewables is to reduce emissions, increase the security of primary fuel source and sustainable fuel sources and to do this at least cost to customers. The commission has a statutory duty to have regard to the need to promote the use of renewable, sustainable or alternative forms of energy.

I presume the committee has been provided with many different statistics and forms in terms of the amount of renewable on the system. The renewable generation mix is shown on the slide and demonstrates that our current installed, renewable energy mix is increasingly made up of wind, which is an important element. The regulatory regime for wind, therefore, is quite important.

The installed wind capacity has increased significantly since 2000 and is now just short of 500 MW. Demand for connections by wind farms to the system is significantly greater. If the amount of connected wind, signed offers and the number of applications queueing is added up, it makes up more than 3,500 MW, which is a very significant amount of applications in the queue. This is just a snapshot of the situation CER is dealing with.

Regarding the regulatory measures in place and the regime to facilitate renewables, one measure is that renewable suppliers have been able to sell to customers well before the full market has been opened. This has allowed them get a foothold in the market. They can sell to any customers. With the market fully open to competition since February of this year, they are now on a level playing field with everybody else.

Other regulatory measures include issues to address the network connections and the backlog of connections. The committee will be aware of the group processing approach which has been introduced, which involves clustering of wind farms together to try to ensure they are connected to the grid in a more optimal and less costly way and can be processed more quickly. As part of that approach, the commission has ruled that wind farms connected to the network will be able to have what we call non-firm physical access, which means they will not have to wait for all the network reinforcements to be done before they can sell their power. They can use the access to the grid, inasmuch as this is physically possible, from the time they become connected.

The commission has put in place measures in market trading which include making green wholesale power available, which is known as a green VIPP. This was an early mover advantage for green energy suppliers. The commission has also introduced quite a degree of flexibility in allowing green energy suppliers to mix and match and use brown energy to balance up the remainder of their supply. This is more flexible than in a number of other jurisdictions. It is designed to deal with, for example, the intermittency of wind and to ensure that those who supply green energy can do so and make up the deficit with brown energy.

In addition, green suppliers have access to cheaper power than brown suppliers for that sort of balancing and this is called first-tier top-up. Those are a number of measures in the current market. The commission sees issues for renewables in the future and these include the continuation of the connection and application process. Based on the number of applications in the queue, it is important that the commission processes those quickly and fairly. The commission published a consultation paper last week on the rules in consultation with the industry.

Another issue for the renewable sector is disclosure and balancing, which will be a new requirement from next year. All customers will be able to see on their bill the source of their energy. This is a challenge to suppliers and the commission will be working with them to ensure they can do that in time. This will allow greater customer choice in terms of the amount of green energy they want to choose.

A major challenge is the all-island market and Mr. Reeves will deal with this subject. The commission is in the process of consulting the industry on how renewable generation can be facilitated with special rules above and beyond standard generation to assist them in participating in the all-island market.

My colleague, Mr. Tutty, will talk about interconnection. There are developments both on North-South and east-west interconnection. Interconnection is important to ensure that we can use intermittent sources such as wind because we have an alternative when the wind is not blowing.

The commission is involved with two important developments. The first is the Vision 2020 consultation document about which the committee was informed. This was produced under the auspices of the all-island project and is about the feasibility of developing policies and setting targets for renewable penetration on an all-island basis and CO2 reduction. This is a snapshot of the current position, what it will be feasible to achieve in the future and how we might be able to harmonise to a degree the existing rules in both jurisdictions. The commission is contributing to this project, which is a very important aspect of work for renewables in the medium rather than the short term.

The final development is on research, development and demonstration. A consultation paper has been issued by the Department of Communications, Marine and Natural Resources on that subject. The commission is very supportive of the co-ordination measures proposed in that paper and it has offered its assistance to study not just the currently commercially viable renewable technologies but also emerging technologies. I know this committee has heard much about emerging technologies but they are not currently part of the traded market and are not necessarily economically viable. The RDD, research, development and demonstration arena is the place where the commission sees that being developed.

I will hand over to my colleague, who will talk about interconnection.

Chairman

Did Ms Finn say that 500 MW of wind energy is currently being generated?

Ms Finn

It is just short of 500 MW of installed capacity. That does not mean it is generating 500 MW. At any one time it could be generating——

Chairman

I understand. How many applications have been approved?

Ms Finn

There are applications in the queue that have not been approved. There are applications in the queue of about 2,500 MW and there are signed offers, projects that should be built, of 370 MW. Under the Gate 1 processing——

Chairman

Is that 370 MW from the 2,500 MW?

Ms Finn

It is 370 MW on top of that. There is another 2,500 MW in the queue. I am giving out fairly round figures. I repeat the offer made to the committee's consultant that we are quite happy to talk about it in more detail.

Chairman

Is the CER aware of my comments about Bord na Móna, which made a presentation yesterday to the committee? It is a corporate company owned by the State and has 320 MW of wind turbine energy to be produced in Mayo but cannot get a connection from the ESB. The representatives of Bord na Móna said yesterday they do not know whether EirGrid is being run within the ESB or as a separate company. I would like to hear the commission's views on that. I want to know who is running EirGrid. Is the commission concerned that a State company did not receive co-operation from another State company when it proposed a wind energy project that would have added immediate value and energy to the national energy requirement? The committee has heard from another company which tried to get connected to the grid but was unable to do so. The ESB, representatives of which addressed this committee some weeks ago, has said it will respond to the committee in respect of that matter.

Has the commission received many complaints from people whose requests to be connected to the grid have been approved by the ESB? What is the nature of such complaints? The commission said in its presentation that the connection process is being accelerated, which is helpful to the joint committee. Has the commission received many complaints?

Ms Finn

I will give an overview of the system in response to the Chairman, before asking my colleague to talk about network connection complaints in particular. The Commission for Energy Regulation has put in place what is known as a "group processing approach" on foot of the enormous number of applications which have been received. Applications have been received for approximately 2,500 MW. It is important to ensure EirGrid processes the applications in a way which ensures that the grid develops in a manner that incurs as few costs as possible and is of optimal benefit to customers. The group processing approach clusters wind farm applications in groups to speed up the connection process. The alternative is to process every individual wind farm application separately and then to interact new applications with the existing applications as they arrive. In such circumstances, the connection offer has to be reworked and the application goes back to the bottom of the queue.

Chairman

Yes.

Ms Finn

I do not know the specific details of the Bord na Móna application. I suggest that it should be processed in a fair and equitable way, along with all the others.

Chairman

When the commission was developing its wind energy policy, did it have particular regard to the clusters to which Ms Finn has referred? The committee has heard about the cluster proposal on previous occasions when other groups made presentations to it. The proposal, which involves wind farms being clustered where wind is available and the infrastructure is in place to make the connection to the grid, makes a great deal of sense.

Ms Finn

The clusters come about by virtue of the applications which are made. The process is driven by those who apply to develop wind farm projects. It is proposed to cluster the applications to remove the interaction, so that the necessary grid reinforcements can be done for a group of wind farms on each occasion, rather than having to be done for each wind farm individually.

Chairman

If the commission receives an application for a wind farm proposal in an area where the grid is unable to take the increased supply, does it defer that application while it examines applications in areas where the grid infrastructure has been reinforced to take the extra energy?

Ms Finn

The applications are processed by ESB Networks, which is the distribution system operator, or EirGrid, which is the transmission system operator, rather than by the Commission for Energy Regulation. The commission agreed the principles of processing to try to ensure that every developer who wants to develop a wind farm and to apply for a connection is treated fairly and equitably. The commission successfully set out the terms of the process. Each application is processed in detail by the system operator. I will ask my colleague, Mr. Michael Tutty, to speak about the complaints which have been received by the commission.

Mr. Michael Tutty

The Chairman asked whether the commission can choose to sanction proposed developments which are near areas where network infrastructure is available. That is one of the options the commission mentioned in the consultation document it published recently. The commission understands from EirGrid that there are not many places in the country in respect of which one can say definitely that new wind farms could be successfully located in less time than it would take in other locations. All parts of the country are near full capacity. I refer in particular to the wind farms processed under Gate 1, which provide 370 MW of wind energy and are taking up the spare capacity that exists. The commission understands that if it were to choose to put projects in certain areas ahead of other projects in the queue, it would not make much difference. It is engaging in consultation on the issue.

The Chairman mentioned that the committee has received a letter pertaining to a specific wind farm. Senator Finucane has passed a copy of the letter in question to the commission. I understand that the networks, which have also received copies of the letter, will respond to it today or very shortly. The commission cannot discuss this complex matter because legal proceedings have been initiated. Although applicants are entitled to make formal appeals to the commission, it has not been directly involved in this case because the commission has not been asked to adjudicate in this instance. I have been informed that ESB Networks will respond to the letter in question today or very shortly.

Chairman

I assume that Mr. Tutty is referring to the application made by Bord na Móna, which made a presentation to the joint committee yesterday. Was a representative of the commission present at yesterday's meeting to listen to the Bord na Móna presentation?

Mr. Tutty

No. The commission is not aware of what took place yesterday.

Chairman

The commission is aware that a presentation was made to the joint committee.

Mr. Tutty

Yes. I do not doubt that Bord na Móna is in the same queue as every other interested party. It would not be right to treat it differently because it is a State body by allowing it to skip the queue. When there was a significant increase almost two years ago in the number of applications for wind connections, the commission had to introduce a moratorium on further applications to give it a chance to work out how the grid could deal with it. The commission is now trying to progress the outstanding applications as quickly as possible.

The commission has almost finished the Gate 1 process, which relates to applications which were received and deemed to have been completed by a certain date. It has issued a document on how it should deal with the Gate 2 process, how many megawatts of wind it should try to deal with and the basis on which the projects should be chosen. The commission hopes to make progress with Gate 2 as quickly as possible.

Chairman

I raised the Bord na Móna issue because it was discussed at yesterday's meeting of the joint committee. I do not suggest that any body, regardless of whether it is small or large, should be allowed to jump the queue in any way. I wonder whether the commission thinks that a delay of two years for a connection is an inordinate one.

Mr. Tutty

The commission would prefer it if applications for connection could be dealt with more quickly. It had to find a way of dealing with the many applications which were received at the same time and it is now doing so as speedily as possible. We need to consider how much wind energy can be placed on the grid in the years to come if present conditions continue. There is certainly a limit to that amount, but we do not know what it is and we certainly have not reached it. If over 3,000 MW of wind energy are placed on the system, as Ms Finn suggested, that will constitute a high proportion of Ireland's total capacity.

Chairman

I was unable to be present yesterday for the joint committee's interesting discussion with a member of the Danish Parliament, Ms Anne Grete Holmsgaard, about Denmark's national energy policy, which is supported by all parties there and does not change other than being tweaked when the Government in that country changes. Ms Holmsgaard made the point that there is no technical impediment to using all the wind energy that is being produced at any particular time. It would be interesting for the commission to read her comments when they are posted on the Oireachtas website next week. My main concern relates to wind energy and renewables. Can the commission outline the barriers in that regard which are likely to act as roadblocks? Can Mr. Tutty indicate who is in charge of EirGrid?

Mr. Tutty

Dermot Byrne is the chief executive of EirGrid. The company has not been formally licensed to take over the grid. It is still an embryo company while waiting to complete all the necessary conditions in terms of the infrastructure agreement between——

Chairman

Does it concern Mr. Tutty that we have been waiting five years for this to be done?

Mr. Tutty

It does. We would like to see our grid set up. It is certainly important in the context of the all-island market. The separation of the system operator from the rest of the ESB has been achieved. We are quite satisfied that adequate separation is in place from a practical point of view and that the grid is operated as an independent operator.

Chairman

Does the CER have power in this area in regard to EirGrid completing its formalisation process, making the connections and managing the grid?

Mr. Tutty

No, we cannot do it from a practical point of view. We could give EirGrid a licence but if the staff have not transferred, we cannot do anything to complete that part of it.

Chairman

Does the CER have a role in how the national grid is developed? Does it have any powers in the roll-out and development of the national grid?

Mr. Tutty

Yes, we do. We have just completed a five-year review of the transmission and distribution systems. We have agreed on the level of capital investment that should take place over the next five years, both on the transmission and distribution systems. We have also agreed on the operational expenditures that should be involved and we have ensured that savings are made and costs brought down. As a result of our determination this year we have achieved a 6% reduction in transmission costs and an 11.5% reduction in distribution costs, as compared with last year.

We have also asked the grid to produce a development plan. It has undertaken to have the first draft of a development plan submitted to us within the next month or so. That will be put out for consultation so that others can have an input into it. The plan will set out how the grid will develop over the next five years or more.

Chairman

What we have heard from Mr. Tutty is certainly not the same as what we heard from Bord na Móna yesterday. Its difficulty is that the capability of the grid is not developed enough at present to take the connection it requires. The grid must also be strengthened in the north-west region. My colleague, Senator MacSharry, who is from there, is attending today's committee meeting.

We appreciate the fact that the ESB is spending approximately €3 billion on improving the network. That work has already been done in many regions around the country. Does it concern Mr. Tutty that perhaps other areas have not yet been reached and are they in the process of being addressed? From his deliberations with EirGrid-ESB on its plan, can Mr. Tutty say if they are working to identify the weaknesses in the grid? Does the new development plan include the need to provide access for renewables in terms of wind energy, etc.?

Mr. Tutty

Since I have not seen the development plan yet, I cannot say what will be in it. When we were agreeing the overall investment programme for the next five years with them, we certainly put emphasis on the need not to cut back on anything that would affect wind energy. We should try as much as possible to provide the facilities for wind energy but, naturally, we should also provide facilities for the other generators we will need in the next four or five years.

Chairman

Did the CER identify areas of the country where the grid needs to be expanded or further developed?

Mr. Tutty

No, we did not look at specific areas. We were looking at the overall investment plan that is feasible for that period. The development plan will set out what will be done with that money in much more detail. We are talking about capital expenditure on the transmission side of €500 million over the next five years. The distribution end, which is much larger in terms of the actual investments, will cost in excess of €2 billion over the next five years.

Chairman

Is there a danger that the infrastructure will go into the eastern half of the country and never reach the western part of the country?

Mr. Tutty

I do not think there is, although one of the areas where there is congestion is certainly in the eastern part, especially in the Louth area. Mr. John Fitzgerald referred to this in his presentation. This development plan will show where the developments will take place and what the plans are. People can make an input into it when the plan is published for consultation if they think the distribution is incorrect.

Chairman

It appears that Mr. Tutty has only been dealing with the financial aspect and he has not looked at the need for building up the network. Has the CER received any technical advice and does Mr. Tutty have any input, as the regulator, into where the network should go and where it should be strengthened and improved?

Mr. Tutty

The ESB already produces a forecast statement which identifies needs every year. It also looks at the possibilities for additional generation within the system and where problems exist.

Chairman

Will the ESB decide where the need exists or has the regulator any input into areas of need and where the grid should concentrate? Does the CER only have access to the finished plan on which it can make comments? Is Mr. Tutty saying the regulator has no input into how the national grid should be developed?

Mr. Reeves

To clarify, the ESB does not produce the development plan or forecast statement. That is produced by the independent transmission system operator which is a ring-fenced entity within the ESB but which will become EirGrid. The ESB builds the network and owns it but has no input into the design of the transmission system.

Chairman

Yesterday, Bord na Móna said it does not know who is running EirGrid. It does not know who is in charge.

Mr. Reeves

That is extraordinary. That is a serious matter for Bord na Móna because——

Chairman

It is on the record. Mr. Reeves should have a look at it.

Mr. Reeves

I wish to put on record that Bord na Móna needs to appoint somebody to find out.

Chairman

Is Mr. Reeves satisfied that there is such a company as EirGrid——

Mr. Reeves

Yes.

Chairman

——and that it is carrying out its function as it should?

Mr. Reeves

As Mr. Tutty said, it does not yet have any statutory functions. That is an industrial relations matter between the ESB, the staff and the Minister. It is not something we can influence. We have done all we possibly can in that regard.

Deputy Eamon Ryan

I apologise for being absent for Mr. Reeves's presentation. I was at another meeting.

Mr. McManus and his fellow directors from the ESB were before the committee in recent weeks. It was remarkable that the word "we" was used throughout the presentation in reference to the ESB grid and ESB generation. The presentation was even more explicit in that it stated the assets were still in ESB ownership. It is clear the ESB has been utterly reluctant to allow for the division the Commission for Energy Regulation representatives are talking about.

Mr. Reeves

Sin scéal eile.

Deputy Eamon Ryan

Sin scéal mór.

Mr. Reeves

Tá sé an-mhór. ESB, as a company, comprises many ring-fenced entities, as was pointed out by the company's representatives in their presentation. The one we are talking about is still called ESB National Grid. As Mr. Tutty stated, it is run by Mr. Dermot Byrne. It is ring-fenced within the rest of the ESB and produces the forecast statement every year, and it will also produce the transmission development plan. However, it is ESB that produces the distribution plans and system — I can understand the use of "we" in that regard.

Deputy Eamon Ryan

I was referring to its use in respect of the transmission system also.

Mr. Reeves

It owns the transmission system and built it. It does not design it or plan it.

Deputy Eamon Ryan

It is based in the same building?

Mr. Reeves

Yes.

Deputy Eamon Ryan

Does Mr. Reeves really believe it is effectively ring-fenced?

Mr. Reeves

Yes. I said at this committee two years ago that this matter was the bane of my life. It has not gone away yet, but has in the sense that Mr. Tutty is dealing with it on a day-to-day basis. However, progress has been made in that the infrastructure arrangement between the two parties is now agreed and it is a matter of addressing the industrial relations issues, including staff pensions and employment rights.

Chairman

We will have to expand further on this issue when the Minister appears before the committee on 6 December.

Deputy Eamon Ryan

We asked the ESB representatives whether there would be a move towards a distributed grid rather than a centralised one. The policy decision on foot of the very large, multi-billion investment we made in recent years, and which we will continue to make over the next three years, has been made in a way that actually hinders the development of renewables and favours large-scale combined-cycle gas plants or centralised large-scale developments. The position of third parties trying to create an open, competitive market, in which renewables would be developed to promote competition, is such that the continued development of the transmission grid as a large centralised grid rather than a distributed one results from an ESB policy decision that will affect competition and the development of renewables. Has the Commission for Energy Regulation any policy position in that regard or offered any direction to the ESB in terms of the nature of the investment or the long-term policy objective of moving towards a distributed grid?

Mr. Tutty

I noted that the ESB representatives, in responding to Deputy Eamon Ryan, stated the structure of our system was such that it was already a distributed system. The bulk of the capital investment is being expended on the distribution system rather than the transmission system. I cannot see how one can operate without an integrated transmission system to supply different parts of the country. Naturally, one must have the distribution system in place also. Many of the wind farms are being linked to the distribution system rather than directly into the transmission system. We ought to have a system that can carry out both functions and which can also be managed on an centralised system, but on a nationwide basis. This would be even more the case when we move to a single market on the island.

Deputy Eamon Ryan

My understanding is that the development of the system is based on the projections of demand rather than projections of future supply. If one regarded the development of renewables as a large-scale, long-term development, one would start to develop both the transmission and distribution systems in two areas of the country where the renewables are likely to come in. The ESB has not done so but is following a policy of developing on the basis of forecasted demand. Those responsible for renewables responded to the ESB's clustering arrangement, whereby an effort is made to develop the grid along a cluster of wind farms, for example, by saying the specifics, conditions, pricing and costing are very difficult to comply with. The system is exceedingly expensive and bureaucratic and not constructed in a way that genuinely facilitates the development of renewables. It suits the ESB but not the renewable energy companies.

Mr. Tutty

We have looked at the costs and brought in a set of standard costings for connections in so far as possible. Some costing elements cannot be standardised, such as the question of whether one must use a helicopter to gain access. We hired expert consultants to consider the proposed costings pertaining to the grid. We reduced the costs in many cases, and we put forward our best cost estimate and that of the consultants. As far as I can see, the developers still believe the costs are too high but we certainly did our best to establish the proper costings and standardise them.

A process has been put in train by the two Departments, North and South, to carry out a study on grid development for renewable energy. We are not directly involved. We are trying to keep up with the developments needed to link the windfarms that have applied for wind connections and to deal with whatever problems arise in the system. At this stage we do not have the luxury of being able to ask ourselves where we would start if we wanted an ideal grid or what we could install in advance of the demand. The demands exist and we are trying to meet them as quickly and efficiently as possible.

Chairman

I want to move on. I interrupted the presentation because I had a number of questions to ask on renewables. Without having regard to who produces the transmission forecast, owns the grid or operates the transmission or distribution systems, will Mr. Tutty state the position on the strategy development plan and the role of CER in this regard? The ESB and EirGrid are not charities. Am I correct in saying that, since the consumer must pay, the regulator has a major role in protecting the consumer?

Mr. Tutty

Yes. The commission has been reviewing the plans for capital and current expenditure so as to agree on the overall charges applicable to consumers over the next five years. As I stated, this has resulted in a reduction in charges this year over last year. We will be examining the development plan that EirGrid and ESB National Grid are putting forward. We will be making it available for public consultation and we will be approving it, or otherwise, after that process.

Chairman

Is Mr. Tutty saying the Commission for Energy Regulation has no input regarding the development plan other than through the broad guidelines it gave?

Mr. Tutty

We are waiting for the operators to produce the development plan and we will consider it when it is produced.

Chairman

Is it a case of ESB-EirGrid?

Mr. Tutty

No, EirGird-National Grid.

Chairman

Are they all part of the ESB or were they part of it?

Mr. Tutty

Yes. As has been mentioned, they are in the same building and part of the same organisation but are ring-fenced from the rest of the ESB. It is in the same building and part of the same organisation but is ring-fenced from the rest of the ESB.

Chairman

Does it or the CER set the agenda for the development plan?

Mr. Tutty

It is drawing up the first draft of the development plan. We shall put it out for consultation when it is produced but we do not have the staff and technical expertise to produce a development plan for the national grid.

Chairman

What is it?

Mr. Tutty

It is Eirgrid, the national grid.

Chairman

The national grid, not the regulator, sets the national agenda.

Mr. Tutty

It puts forward the first draft of a development plan which we put out for consultation and then approve or suggest amendments.

Chairman

Did Mr. Tutty say he did not have the staff or the technical expertise to draft the plan?

Mr. Tutty

We do not see it as our role to draft the development plan for the national grid but we do have a role in determining whether the plan is adequate.

Chairman

Will the CER bring in the expertise to examine the plan after Eirgrid has set the agenda and prepared the first draft? Does the CER ask experts to examine whether the plan is drawn up correctly and in the best interests of Ireland incorporated, or those of Eirgrid and the ESB?

Mr. Tutty

We will consider whether it fulfils the development needs that exist. We will see when we receive the document whether we need consultants to assist us.

Chairman

Did the CER have a role in deciding that Eirgrid would draw up the development plan?

Mr. Tutty

As I understand it the legislation requires Eirgrid to draw up the development plan.

Mr. Reeves

SI 445 of 2000 sets out all these functions for Eirgrid, and for the CER, and the criteria it needs to take into account in developing its forecast statement and plan.

Chairman

Are Eirgrid and the CER following the law passed in 2000?

Mr. Reeves

Yes they are following SI 445 of 2000.

Chairman

That is out of date and would not mean——

Mr. Reeves

It is still the law.

Chairman

That does not necessarily mean that it is the right model to follow now.

Mr. Reeves

It is the only one we have.

Chairman

We will move on to interconnection. Mr. Tutty has a lot of air time today. Then we shall go through the rest of the questions.

Mr. Tutty

I will be brief on this because we all agree that interconnection is a good thing and is needed. We have one electricity interconnector to Northern Ireland, as the committee heard today from the Northern Ireland authority.

A second interconnector is at the planning stage and has been agreed between us. The national grids, North and South, are pursuing it as quickly as possible. We have agreed that it is desirable, particularly in the context of the single electricity market on the island.

Northern Ireland is already connected to Scotland through the Moyle interconnector and we are all connected to the European mainland through the United Kingdom. The Government asked the CER to progress an interconnector from the Republic to the United Kingdom. It suggested first that we do it on a merchant basis but because public consultation showed there was no interest in doing it on a purely commercial basis, the Government asked us to consider doing it on a partly regulated basis, in which there is interest.

We asked a set of consultants to advise us on how to structure a competition to do it on this basis. To do it on a partly regulated basis raises questions as to what sort of regulation applies, how much should be passed on to the private sector, how much it is willing to take on and how to achieve the project. We recently received the report of the consultants which we are reviewing and will soon report to the Minister to consider the next steps.

The consultants have found there is interest among people in the private sector who are willing to compete for this project. Security of supply is the primary purpose of the interconnector but it would also increase competition in the market and open up the possibility of exporting electricity.

There are two gas pipelines to Scotland with spurs going off to Northern Ireland and the Isle of Man. Another pipeline is under way, which the Northern Ireland authority mentioned this morning, from Gormanstown to Belfast. Through the United Kingdom we are linked to the European mainland. There seems to be no need for further gas interconnectors, although it may be necessary to upgrade the facilities at the Scottish end before too long.

The Chairman asked me to cover the gas pipeline to the north west. We have agreed guidelines for Bord Gáis covering what extensions should take place, how the company should look at these and the net present value as mentioned earlier. We are reconsidering those guidelines with Bord Gáis to see whether changes should be made in them and whether they are adequate at this stage. That is relevant to the gas pipeline from the Corrib field to the towns in that area.

The gas pipeline to the north west is a different financial situation. On the Corrib, the question is whether there should be branches to different towns whereas in the north west the question is whether there is an economic case for a pipeline. The agreement with Bord Gáis on the guidelines for further pipeline development will be relevant to that.

The situation needs to be studied in the overall context of the costs and benefits of a pipeline and what sort of demand there will be in that area. The Department requested a study and we have passed on a report on the pipeline from Derry to Letterkenny to it. The Department must decide on the next step.

That is all I have to say on the interconnectors except to reiterate that we are concerned about them and would like to see as much interconnection as possible to ensure that we are fully integrated with other systems.

Senator MacSharry

To what extent must the CER be cognisant of the aspirations of the national spatial strategy?

Mr. Tutty

We are aware of the national spatial strategy and will support it as much as we can.

Senator MacSharry

Mr. Tutty stated earlier that in terms of a line to the north west, he would be speaking with Bord Gáis and deciding where it should go. Is there a role for the CER in deciding where it should go or is that purely a commercial decision for Bord Gáis based on the Gas (Amendment) Act?

Mr. Tutty

I did not say we would be deciding where it would go. I said we would be talking to Bord Gáis about the principles and methods of calculation which it would use in determining whether a pipeline or a spur from a pipeline is economic and should go ahead. Whatever costs are incurred have to spread among all the customers in the system. We heard earlier about the Northern Ireland situation where they simply ran a competition whereby whoever found it economic to run the system got the go-ahead. We have not taken that sort of action in the South as yet. Bord Gáis is the sole transmission pipeline developer. We had a competition for supply, which Flogas won.

Chairman

Having heard the presentation by Mr. McCann this morning, does Mr. Tutty find it strange that, to use his term, commercial or merchant bases at Bord Gáis are prepared to build out a network from Belfast which is being covered by Phoenix Gas, and to build it right across Northern Ireland, yet are not prepared to build a network in the north-western area of Ireland? As Senator MacSharry will confirm, many Irish counties are disenfranchised in terms of our energy policy and the roll-out of natural gas. My colleagues will supply the names of the counties if Mr. Tutty is not aware of them. I was not referring in particular to Letterkenny, but to an entire region, of which Mr. Tutty is aware.

Mr. Tutty

In Northern Ireland, Bord Gáis was dealing with the transmission line which had been subsidised by the Government. I am not sure if the pipeline subsidy came through the EU or not. Bord Gáis was bidding to build spurs off it to different areas along the pipeline. Regarding the north west, we do not have a pipeline there. I am not aware of any subsidies available for the pipeline so we are looking at a completely different economic case. Bord Gáis and other competitors found it economic to build the spurs from that pipeline in Northern Ireland. If the pipeline to the north west is economic, Bord Gáis would be willing to build it, and others would be interested in building it. The issue is the economics, and how we deal with them.

Chairman

Is the pipeline proposed to connect with the Corrib gas field coming from Limerick?

Mr. Tutty

It will join the existing system in Galway.

Chairman

The CER is therefore looking at a model which can have spurs run off it, which makes good sense. Would that be on a commercial or merchant basis?

Mr. Tutty

The CER has tried to ensure that the pipelines built pay their way, so that the general consumer in the country is not being asked to pay more money.

Chairman

The Northern Ireland model has been set up on a commercial basis. The pipeline is there and Bord Gáis has won a contract to branch off that with spurs to connect different towns in Northern Ireland. Is it the CER's intention to look at such a model, which would pay its way out of its own resources, similar to what is coming on stream in Northern Ireland?

Mr. Tutty

In terms of the Corrib pipeline to Galway, we are looking at the basis on which Bord Gáis determines what is an economic proposition with regard to which towns along the way should be supplied. The existing criteria are probably too tight, too narrow. We are looking at whether they should be widened.

Chairman

I am only using the Northern Ireland model as an example to assist Mr. Tutty.

Mr. Tutty

We are not talking about running a competition to see who else would do it. We are talking about the criteria to be used by Bord Gáis in determining what is an economic proposition in terms of expanding the gas system and taking spurs off the pipeline going down to Galway.

Senator MacSharry

The regulator has no obligation to potential consumers in terms of the north west, or the right of supply. That is why I was referring to the national spatial strategy. Is it solely for Bord Gáis — or for the ESB if it were involved — to decide where it wants to go, based on the commercial mandate it has? Does the CER regulate that decision in terms of pricing and the criteria used in deciding exactly where the pipeline should go, rather than suggesting or encouraging? I notice that the Northern Ireland regulator spoke of encouraging this, which is how it is happening now in the North.

It is a disgrace that any regulator would claim to be aware of the national spatial strategy yet simply say the regulator would stick with it where possible. On another level we have Bord Gáis ready to handle something in another jurisdiction. Meanwhile an entire section of the country, north of a line from Dublin to Galway, and west of Mullingar, has nothing, not even plans. I am told that the DKM report, to which Mr. Tutty referred, recommends that the line from Derry to Letterkenny should not be proceeded with. If we are going to proceed purely on a commercial mandate we are going to close the doors on the west of Ireland and build nothing. We know 1 million people will seek to live in the greater Dublin area in the next 15 years yet the only concern is with a commercial mandate.

From what planet does the economist come who recommends an NPV of seven years for industrial and commercial customers, when that includes hospitals, schools and Government institutions as well as small and medium sized enterprises which I grant may well go in or out of business, and when historically there is no trend to show that consumption of gas or electricity has decreased? Is this seven year rule to suit and play into the hands of Bord Gáis which, when it came before this committee some time ago, openly said it had no plans at all to go to the north west region? There is no difficulty in taking the gas, getting it to the market as quickly as possible and ignoring the north west region.

Mr. Tutty mentioned consultants and expertise. Given the result of what such consultants are hired to do, I wonder if they are told to build a case to get to such results? Seven years in this regard is a ridiculous period. If one was banking any proposal in commercial terms, one would not be proposing to borrow €2 million for a commercial enterprise and saying that in seven years one was going to go bust. No bank would look at such a proposal. Why is the CER looking at it like that, when the UK looks at such a situation over a 20-year period? Why does the CER not look at it over the lifespan of a pipeline, which I am told is between 20 and 40 years? I do not understand that.

To what extent is the CER using its good offices to get pipelines to all consumers? I assume the CER's responsibility is to all consumers but unfortunately I have not got the possibility of consuming as I live in the north west of Ireland. There is no problem — once one crosses the Shannon, one must merely set one's clock back about 15 years, because providing the service there is not in the remit of the regulator. If it is not in the regulator's remit, can Mr. Tutty tell me what we need to do, as legislators, to get it into the remit so that the CER has some level of public service obligation which it can apply to the CGE and others? I have further questions relating to the ESB and other matters, but perhaps I can put them later.

Chairman

We will deal with the first question because it relates to this particular section presented to the committee by Mr. Tutty. Then we will move on to the final section that relates to Mr. Reeves. Perhaps we can have answers to those questions from either Mr. Reeves or Mr. Tutty. Deputy Kelly, from the same region, might be able to explain to us about the areas that are affected, from his perspective. We shall take these answers now because a good many questions were asked by Senator MacSharry.

Mr. Tutty

Senator MacSharry was responding to his own questions towards the end by talking about the public obligation to be imposed. An obligation is not imposed on us to develop gas throughout the country. We have obligations to regulate the sector and to keep consumer prices down, among other things. In Northern Ireland there was a subsidy for the gas pipeline going over to Derry. If there was some type of subsidy in place here that made the project economically viable for the gas consumer, it would naturally be much easier to do it. However, we do not have the basis on which to provide a subsidy to Bord Gáis to run a pipeline. To some extent it is a question of Government policy on the development. Our role is to ensure that the gas system as it is, runs as efficiently as possible, minimising the price to the consumer, and that additions to it are reasonably economic.

The seven year period for industrials in the NPV calculation is undoubtedly one of the elements we are looking at in the review of the policy. Without revealing what is to emerge, I should be surprised if that seven years stipulation remains under the new criteria.

Senator MacSharry

As long as it does not go down, to suit Bord Gáis, which seems to be the current position. Seven years is ridiculous.

Mr. Tutty

I certainly do not expect it to go down.

Senator MacSharry

Will it go up, then?

Mr. Tutty

Of course.

Deputy Kelly

Mr. Tutty has more or less answered some of the questions that I had to put. It is well known that there is no natural gas in Donegal, Sligo, Leitrim or Longford. I understand the economic viability stricture in Bord Gáis's remit. Given that the gas board is not prepared to go anywhere unless economic viability is proven beyond doubt, will the regulator open up the market and allow somebody else to operate from Donegal to Sligo, to Leitrim, to Longford?

We all have briefs and job descriptions indicating what we should be doing, but sometimes we have to go beyond that. Has the CER any plans in helping to bring gas to Longford? If I appear particularly anxious about Longford it means I am concerned about many other places as well because it will have to come through these areas to get to us. We are in the middle so to speak.

In the view of the CER — as experienced people who know the business inside out — what are the options for the people of Longford, as regards natural gas? Does the CER believe it has an obligation and a duty as the regulator to bring gas to Longford? I know it regulates the sector and keeps prices down but is it concerned that parts of the country such as Longford are without natural gas and is any effort being made to deal with that situation? Is it in the regulator's plans for the future?

We have other forms of power in Longford. I see some people from the ESB here and they are very welcome. We have to keep in with them, since we need them as we have not got the natural gas. We are operating on just one utility, but we would be pleased to get gas. One of the CER's resolutions in the new year should be——

Chairman

Is there no generating station in the Deputy's constituency?

Deputy Kelly

There is one in Lanesborough, County Longford. It is a state of the art facility, but we believe that——

Chairman

Who operates it?

Deputy Kelly

It is operated by the ESB and it is doing a good job. We thank the present Government for its major investment of €25 million. It is a peat run station.

Senator Finucane

The consumer is paying for it through the public service obligation mechanism, which is anti-competitive.

Deputy Kelly

The Senator should come down to Longford, to meet the people from Bord na Móna.

Senator Finucane

The consumer is paying for it——

Deputy Kelly

Bord na Móna is in Longford since the 1950s, as is the ESB. One could not have finer people or better employees. They have given a good service.

Senator Finucane

It is not a question of ——

Deputy Kelly

Bord na Móna has done this country proud, as has the ESB, but——

Senator Finucane

We know that, but——

Deputy Kelly

—— we need other options such as natural gas as well. ESB representatives are here. I am sure they would not mind any member of the committee taking a look at the Lanesborough power plant. It is probably one of the most modern peat generating stations in the world. However, we just want a choice for the consumer who deserves such an option.

Deputy Broughan

I want to talk on this matter because I was here last night when the Ballina Chamber of Commerce, which made an excellent presentation, was before the committee. Has the dynamic for the seven year rule for recovery of capital costs changed or will it be altered by the Corrib field? Just listening to the representative body from Mayo and the north west — and this committee has been involved, as well, in the Corrib issue — since this region will be the onshore point for what is probably a major natural gas resource for the country, does that not change the financial restraints referred to constantly in this very fine report? Given all the discussions on this throughout the summer — including the Clover Hill issue involving the people in prison — about the lack of energy infrastructure in Mayo, Sligo and indeed the great County Longford as well, has the dynamic not changed? Should the CER not be looking at ways to ensure that Statoil, Shell, Marathon, etc., will as a first requirement create the necessary infrastructure for those parts of the country at least? Given the fact that they are taking the pain, they might as well be getting some of the gain.

Deputy F. O’Malley

In response to what has been said, I notice that on page 9 of its presentation the CER states that there is no need for a gas inter-connector at present. I apologise for not being here earlier, as I had to deal with other matters. However, I asked whether justification had been given for this. Security of supply is the next brief mentioned. Everyone is aware how dependent we are, given there is just a single supplier of gas. I find it extraordinary, given the CER's overarching responsibility in terms of security of supply that it is prepared to tell the committee there is no need for further gas connectors at present. I would like to hear the justification for that.

On the matter of inter-connection I presume that also means the grid in so far as access is concerned. Bord na Móna representatives told the committee last night how difficult it was for them to get their wind operations connected in Mayo. I asked them whether they were getting any assistance from the regulator and they just shrugged their shoulders. They did not want to criticise the CER, I believe, but in another sense, while nationally this is EirGrid's responsibility, the CER nonetheless has a duty to ensure that company is providing the infrastructure which facilitates the capacity to assist with the security of supply issue. I feel the CER is not doing that.

I look forward to hearing about security of supply. How seriously is the Commission for Energy Regulation taking its role in providing interconnectors and connectivity for a variety of sources of energy in the country?

Mr. Tutty

Bord Gáis does not have a legal monopoly in providing transmission facilities. If any company wants to build a transmission line in the north west, it can do so. The economics would obviously need to be right for the company to do it. From a formal point of view, there is no monopoly so it could be done.

A question was asked about bringing gas to Longford, but we still come back to the same issue of economics. There is no gas where I am living in Allenwood, County Kildare. Bord Gáis has to look at the economics of the situation. Ballina Chamber of Commerce mentioned the seven year issue when it visited us recently. We are reviewing the criteria under which decisions are taken and the seven year estimate will certainly go up. There is agreement that it is not really suitable.

In the presentation, I pointed out that there was no need for gas interconnectors at the moment. We have two pipelines coming from Scotland, while the Corrib gas will hopefully come on stream. The capacity is there and there is no need to build a third pipeline to the UK. There may be a need to upgrade facilities in Scotland to get more flow from that side, but the cost of building an interconnector to the UK, which is not needed from a capacity point of view, would put quite a strain on costs in this economy.

Deputy F. O’Malley

I understood that there was only one pipeline.

Mr. Tutty

There are two pipelines to Scotland.

Deputy F. O’Malley

Into the South?

Mr. Tutty

Yes.

Deputy F. O’Malley

Where are they?

Mr. Tutty

They both come from the same place and they both come in at the Gormanstown area.

Deputy F. O’Malley

So they are running parallel to one another. If there was an interruption, would both pipes be affected?

Mr. Tutty

There is one pipeline at the Scottish end and we may need to upgrade facilities there. As I understand it, one pipeline leaves Scotland which then divides into two. We built a pipeline and subsequently decided to build a second one. There are two pipelines crossing over from Scotland on different routes that are not quite parallel.

Deputy F. O’Malley

If the supply coming from the one Scottish pipeline was interrupted, gas supplies to Ireland would be cut off. Is that correct?

Mr. Tutty

Yes. That is why I was saying we may need to something at the Scottish end. It would certainly be much easier to have two pipelines on the Scottish mainland than to build a third pipeline heading from the Republic over to somewhere else in the UK.

Mr. Reeves

The sub-sea pipelines would have enough gas in them to keep us going for two days, so it depends on where the break happens. If it occurs on-shore in Scotland on the single part of the line, it can be fixed within one to two days. There is probably enough lie-pack gas stored in the pipeline, that is, gas under high pressure, provided we take some remedial action over here. It is not as catastrophic as the Deputy might think. It would be a much bigger catastrophe if the off-shore pipeline broke.

Chairman

We need to move on. I broke my own rules in interrupting the presentation, because I had some pressing questions.

Senator Finucane

Was the delegation asked to submit a presentation beforehand?

Chairman

That was done.

Senator Finucane

Did we get it in advance?

Chairman

It was emailed to everyone.

Senator Finucane

Should we not be able to go straight to questions?

Chairman

We will hear from Mr. Reeves on the next part of the presentation. Senator Finucane will be first to ask questions after that.

Mr. Reeves

I want to speak on security of supply, which is one of the areas on the Chairman's list. Since the introduction of new legislation last February, we have been given some statutory functions on security of supply which we did not have before. We must monitor some things and take measures if we come to the conclusion that things need to be done. There are duties for both the transmission systems operator and for ourselves. The transmission system operator is the person who operates the system, calls in the power stations and makes sure the network is properly run. The operator has to advise us on any threats in the short and long term and recommend what needs to be done. We take measures, with the consent of the Minister, that we deem necessary to protect security of supply. We are obliged to publish a report every two years. The first report is due in July 2006. In the short term, we will publish a consultation paper on what that should contain. This is a new statutory duty, but we have observed that duty in an unofficial way since our foundation.

Security of supply deals with short and long term issues. The short term is this coming winter and we take our operational advice from the ESB national grid, which has informed us that we should get through this winter and that margins will be tight but adequate. The key to this is the improvement of the ESB Powergen plant performance. The committee heard about this a few weeks ago from the ESB. There is quite a bit of forced outage, particularly on the older oil stations, some of which date from the 1970s. There is a high demand for maintenance and upgrade of those stations, which are crucial to improved performance. Availability so far this year has been around 82% and we have set financial incentives and penalties for the ESB to at least achieve that. If it does better, then it will make some money. At the moment, there are 6,250 MW of plant on the system. The peak demand is increasing all the time and we expect it will be over 4,800 MW this winter, compared to 4,500 MW last year. We must make sure we have enough plant on stream.

From a long term point view, the national grid or Eirgrid produces a seven year generation adequacy report every year. We expect to get a new report in about one month, which will look forward to our requirements for the next seven years. Growth is assumed to be at 3.5%, but since I have been in this job, it has been much more than that. We have adequate margins between now and the end of 2008, but we will need additional plant in 2009. Total renewables, including the large scale hydroelectric plant, amount to 750 MW at the moment. Aughinish and Tynagh won the competition for a new station that we ran two years ago. They are scheduled to come on stream soon. Veridian, which runs a plant in Huntstown, has plans to construct another power station in 2007 and civil works have begun on that. We need a new station in 2009.

The east-west interconnector, mentioned by Mr. Tutty, will be in place by 2011, according to plans. Ironically, the north-south interconnector will take a bit longer and will not be in place until 2012, although we would dearly like to see that in place much sooner. We will encourage the two transmission operators to get that in place much sooner than that.

Another issue related to the security of supply is the fuel mix. There has been a significant increase in the consumption of gas. Since the establishment of regulations, the four new stations all use gas, other than the two new replacement peat stations in Loughrea and Offaly. We have also approved environmental investment of €360 million in Moneypoint to deal with issues such as sulphur and nitrous oxides.

As we have heard, there are increasing amounts of renewables. We are assured that we are on our way to meeting the target the Government agreed with the EU of 13% in renewables by 2010. Some 80% of our gas is imported from the UK, although this proportion will decrease with the coming on stream of the Corrib field. The generators have this year taken what we regard as better action in their booking of capacity on the gas pipeline. We will certainly have enough gas and enough capacity for the coming winter. That concludes this brief outline of the security of supply obligations.

Senator Finucane

Most complaints we have received with regard to wind energy projects concern the difficulty with connecting to the national grid and the prohibitive costs involved. Mr. Reeves stated that the intention is to encourage renewable generation at the least cost to customers. While that is a laudable objective, many developers will find it difficult to access the national grid or pay the prohibitive costs unless assistance is provided or the ESB reduces its charges for connection to the national grid. If this issue is not dealt with, we will not achieve our objectives in regard to wind energy.

What was the cost of temporary winter emergency generation last year and what is the anticipated cost for this year? Does Mr. Reeves think it fair to the customers of the ESB to add a charge for this onto normal prices? If the problem is that the generating stations, which are predominantly ESB stations, are not satisfactory, why should the consumer be penalised with regard to cost?

There is much speculation about a new ESB project in Aghada. Will an alternative player enter the Irish market to build that station or will the ESB build it? When will the Moneypoint project be completed ? At what level are sulphate emissions currently and to what level will they be reduced?

One month ago I sent by fax to the CER details of a wind energy project that was meeting impediments with regard to the ESB. I had to contact the CER office yesterday to ask when I would get a reply rather than an acknowledgement of the receipt of the documentation. I am disappointed that I did not receive a reply. One month is a long time to wait and this delay does not augur well, given that this is the first letter I have sent to the energy regulator. Mr. Reeves might deal with my original points and explain why I did not get a response to my correspondence.

Mr. Reeves

I shall refer the questions on wind energy to my colleague, Mr. Tutty.

Mr. Tutty

I answered on this question earlier and will repeat the answer if the Chairman wishes.

Senator Finucane

I was not present at the time because I had to attend another meeting.

Mr. Tutty

I realise that. On the cost of connections, we recently set out standard costs to be charged by the national grid for wind connections. We did this following public consultation and using experts from the UK to assist us in setting the costs. While the developers undoubtedly consider the costs high, following the review we consider them necessary. The standard charges cover most of the items and, while some items could not be determined on a standard basis, we have formally outlined a set of standard charges.

We are all aware of the difficulty of accessing grid connections. There was a major influx of demand for new wind farm developments which we are currently trying to deal with. We are still trying to deal with applications for over 2,500 MW. We have dealt with the first 370 MW on a group basis, under what we called gate one. We have just issued proposals for consultation as to how we progress to the next step, gate two, and are awaiting responses from investors, the public and anyone who wants to give us input.

Senator Finucane

Would it be possible to get a copy of the list of CER charges? This would help me to be more knowledgeable when energy promoters contact me for information.

Mr. Tutty

The charges are published on our website and are fully available to everybody.

Senator Finucane

I will get them from the website.

Mr. Tutty

I can send them to the Senator if he wishes but I make the point that they are publicly available.

With regard to the project which was the subject of the Senator's fax of one month ago, we tried to pursue the matter with ESB National Grid to ascertain the current position. We were unable to reply to the Senator because we did not have the required information. We understand from ESB National Grid that it will reply directly to the correspondence and will give us a copy of the reply. My understanding is that it was to reply today or in the near future, and I hope this is the case.

Chairman

I hope they will not reply mañana, as they say in Spain.

Mr. Tutty

We understand that the company involved has issued legal proceedings so it is not appropriate to say much about the matter. We have not been directly involved because the company did not make an appeal to us under the legislation. It was waiting for a second grid offer and perhaps it would have appealed at that stage. However, it has taken the route of opening legal proceedings.

That is as much information as I have. We would prefer to be able to respond to the Senator more quickly but we did not have the information that would allow us to do so.

Senator Finucane

It would be a comfort if one received clarification on what was happening. It would have been easy to send a response. We must consult with ESB and will await its response.

When a person makes a request of a public representative, one is assessed on the efficiency of the response. The person who made this request would not have envisaged that it would take me four weeks to respond. If the ESB intends to respond directly to the client involved, it would have been a matter of courtesy to provide a copy of the letter.

Chairman

I disagree. Out of the courtesy to this committee, its members and any Member of the Oireachtas, it is important in the first instance that the CER acknowledges correspondence from Members of the Oireachtas. Following that, it is important that it responds with the required information as quickly as possible. Mr. Tutty indicated why the CER could not respond in this case but it would be better, if EirGrid is in business and is answering the telephone, that it would respond directly to Mr. Tutty and that Mr. Tutty would respond to the member, who would then correspond with his constituent. Is it common practice for the CER to respond immediately to public representatives?

Mr. Tutty

Yes, it is. Our practice is to acknowledge letters immediately and to respond as quickly as possible after that.

Chairman

That is standard practice for all State regulators and anybody dealing with this committee. Are the witnesses all at Secretary General level and therefore aware exactly of the procedure?

Mr. Reeves

Yes.

Chairman

Is that also true for Ms Finn?

Ms Finn

My contract is directly with the Government in respect of my role as commissioner. It is not specifically pegged but is broadly in line with Secretary General level.

Chairman

All delegates therefore know the procedure for responding directly to Members of the Oireachtas.

Senator Finucane

Will the delegates answer my question on the costs in regard to the winter peak?

Mr. Reeves

Senator Finucane asked about the winter peak in operation in ESB power stations. Some stations will not be available, perhaps because they have broken down, and there will be changes in demand. When we look at the running programme for the year, we consider what we expect the peaking stations to run at and the additional costs in this regard. That is included in the much loved public service obligation. For 2006, the amount set aside is more than €21 million. It is quite an expensive undertaking but we would have no power without these particular stations.

Senator Finucane also asked about Aghada and the proposal from ESB. Although there is much talk in this regard, we have had no applications for authorisation to construct power stations for 2009. The Aghada station is well known but there are many issues to contend with. The Minister has commissioned a study to examine future market structures and dominance.

Deputy Broughan

Does the CER advise the Minister on that? Who takes the first step?

Mr. Reeves

Does the Deputy mean in regard to Aghada?

Deputy Broughan

No, in regard to any station.

Mr. Reeves

The market is structured such that it is we who are approached. Somebody in the private sector will develop a proposal and come to us for an authorisation to construct.

Deputy Broughan

Has the CER informed all parties, including the Department, that it believes further generation is necessary?

Mr. Reeves

Yes. The Department would be aware in any case because such issues are part of the generation adequacy report that is published every year. It is well known that a station is required in 2009. Aghada is a possibility in this regard but is wrapped up in a number of issues. In this context, the Minister has engaged consultants to advise him on these matters. I believe the final report is due in approximately a month's time. There is no doubt, however, that a station is required.

In regard to Moneypoint, issues relating to the sulphur dioxide and nitrogen oxide emissions are tied up with EU regulations. I understand all the investment must be completed before the end of 2007 because the station must be compliant from the beginning of the following year. That is the target completion date.

Deputy Eamon Ryan

The security of energy supply will be of major significance in coming years as we approach a peak in global oil production. I do not believe the International Energy Agency's assertion that there is sufficient supply until 2030. That type of lengthy timeframe for the easy production of oil is increasingly derided in most circles. Given that oil and gas are interchangeable in many different uses, there are implications also for the gas market. There are different views on when a peak in gas production might occur.

Are the CER's view on these issues confined to the electricity area? Does it have responsibilities in regard to heating or transport, for example, given the interchangeability of fuels? Gas can be used for both heating and electricity, for example. Is the CER concerned only with security of supply in terms of electricity?

Mr. Reeves

In regard to the security of supply, we have infrastructural obligations for gas. We have no role outside electricity and gas.

Deputy Eamon Ryan

Does Mr. Reeves agree that if we are to devise a national policy on security of supply, it makes no sense to separate out one energy use given the different applications to which fuels are put?

Mr. Reeves

The Minister, on behalf of the Government, has the responsibility for oil under its IEA and EU obligations regarding holding stocks and so on. That does not rest with us.

Deputy Eamon Ryan

Does it not make it difficult to formulate a coherent policy, in a situation where fuel is interchangeable between the different markets, if the Government has one responsibility and the CER another?

Mr. Reeves

We do not have different responsibilities. What we are talking about here is primarily capacity. We do not foresee any difficulties in regard to the availability of fuels in the seven-year horizon of which we have spoken. Issues may arise in the longer term, by 2025 or 2030, but that is an entire generation away. The plant we are building now will have finished by then.

Deputy Eamon Ryan

The power stations we commission in 2009 will be operational in 2030. Is the CER not obliged to take a view for 2030 or 2050 when it decides on the generational capacity in which we invest now?

Mr. Reeves

The fleet of power stations that will be required in 2050 will become an issue in 2020 or 2025. We are two generations away from 2050. The stations that are here now will be gone. Many of them will be gone in ten years' time and will be replaced. It will be a gradual move from fossil fuels to whatever replaces them.

Deputy Eamon Ryan

Would it not make sense, rather than waiting for 2020, to adopt some of the existing technologies? In 2009, new plant will be needed to produce an output of roughly 400 MW. Small biomass generation facilities are being built in many countries. We could easily start developing biomass and, through a series of different generation capacities, meet that 400 MW target by 2009. Why should we continue to focus on burning what is a scarce depletion resource rather than developing the technology already in place in other states? Countries such as Austria, Spain and Denmark are streaming ahead of us in this area and creating tens of thousands of jobs in the process. Why should we decline to do the same? Rather than reaping the benefits of new jobs and technologies, do we prefer to stick with the old combined-cycle power stations because that system will meet our needs until 2020? Why are we taking that view?

Mr. Reeves

So far, biomass has only been small-scale, producing perhaps 50 MW.

Deputy Eamon Ryan

Ten such facilities would fulfil our needs in 2009.

Mr. Reeves

That would require much land and plenty of growing and collecting.

Deputy Eamon Ryan

Some 10% of our land is under forestry which we do not know what to do——

Mr. Reeves

I am totally in favour of biomass. It is part of but not the entire solution. It is a low-energy product and one needs lots of it to produce the required energy output. It is a useful part of the solution, however. Biomass will be evaluated in the next round of the Minister's consultations. It will play a major role in the development of renewable energies into the future.

Deputy Eamon Ryan

There are some 21 different renewable energy sources to which we could turn. In regard to biomass, there are many waste plants we could convert. Current difficulties in regard to sewage could present possibilities in terms of biogas. There is a range of different technologies. Does the CER believe that by 2009 we will have the ability to get something like 400 MW of generation from a variety of different biomass sources?

Mr. Reeves

I do not believe so but I endorse Deputy Ryan's point that there are many sources of renewable energy which can be used to develop electricity. In Dublin city, for example, there is a proposal for what is called thermal treatment of waste. It is not, however, universally welcomed, as the Deputy is aware. These types of methods can all be used to generate electricity and all have their place. Who knows what will be in place in 2050?

Deputy Eamon Ryan

If the Government opts for the gas plant option for 2009, will the CER go with an open-cycle rather than a combined-cycle gas plant? The former allows a better support structure for wind, which is variable and for which one needs a fast switch on-switch off site plant to back it up.

Mr. Reeves

To clarify, the decision on which plant to build is not for the CER to make, unless no plant comes forward. If we know in some six to nine months' time that no plant is coming forward, we must take action. We did so in 2003 when the country might have run out of capacity. An open-cycle plant serves useful functions in the markets because it offers a quick response. Other methods can be used to back up the intermittency of wind. Mr. Tutty has spoken about interconnection which would help in this regard. There is also pump storage and other types of storage of compressed air and so on, which are being evaluated as a means of balancing the intermittency. All of these methods have a part to play.

Deputy Eamon Ryan

Has the CER the ability to direct the market in terms of saying, for example, that we do not want a combined-cycle plant because it takes two or three hours to heat up and that this does not suit us in terms of providing back-up to wind?

Mr. Reeves

There is an open and competitive market for generation and there is no central planning.

Deputy Eamon Ryan

Mr. Reeves said there have been difficulties with altitudes at Tarbert, Great Island and Poolbeg. How close have we come in the last year to not having sufficient capacity? Does the CER monitor this issue?

Mr. Reeves

The grid operator has two types of alert, a red and an amber. A red alert is the more serious and means that if one more station fails, we would be unable to meet our load. An amber alert means that we would be in trouble if two stations fail. Amber alerts are not uncommon. However, so far we have been all right. One can also cover such scenarios by taking measures such as increasing the output of existing stations above their nameplate output for a short time. We also have other schemes to encourage consumers to reduce their demand.

Chairman

How many amber alerts were experienced last year?

Mr. Reeves

I do not have that figure to hand, but we can find out.

Deputy Eamon Ryan

Roughly speaking, what percentage of time would we have been on amber alert over the last month or two?

Mr. Reeves

I do not have those figures to hand. I must come back to the Deputy with them.

Deputy F. O’Malley

Can Mr. Reeves give the committee members any indication?

Mr. Reeves

There was an amber alert yesterday.

Deputy Eamon Ryan

I wish to ask a final question concerning our increasing dependence on gas for electricity generation. The Commission for Energy Regulation's counterpart in the United Kingdom commented that it has serious concerns about being able to meet that country's gas requirements this winter, given the depletion of gas flow from the North Sea. I understand that the rate of depletion is equivalent to 7% to 8% per annum. The British have passed the peak of production, a concept which I believe will dominate energy issues in the near future. The United Kingdom has indicated that it has a problem and may be unable to meet its needs. Mr. Reeves mentioned that we have bought long term capacity, presumably in the form of long term contracts, although I understood it was difficult to secure long term contracts on gas payments. If the United Kingdom is running short, moving from amber to red, or entering a scenario where it cannot be powered, what possible political control do we have to ensure that scarce resources are used to keep Funderland lit up over Christmas?

Mr. Reeves

Without being facetious, Funderland and the glitzy displays on people's roofs add 50 MW or more to our demand at Christmas and are to be abhorred, even though people like them. They add enormously to demand over the Christmas period. As for the gas——

Deputy Eamon Ryan

For the record, I am not personally opposed to Funderland.

Deputy Durkan

If the Deputy asks that kind of question-——

Deputy Eamon Ryan

I do not wish to cancel Christmas.

Chairman

I wish to reassure any children watching the joint committee's proceedings that it is good to have fun.

Mr. Reeves

Funderland is not the problem. It is caused by all the reindeer and other items which people put on their roofs.

Chairman

Obviously. Mr. Reeves should continue.

Deputy Eamon Ryan

Deputy Callely might have a word with them.

Mr. Reeves

In the United Kingdom, National Grid Transco produced a forecast in respect of winter gas supplies. It adopted a scenario based on a forecast of an arctic-type winter, which was produced by the British Met Office. The probability of such an occurrence is slightly more than 50%. Under such circumstances, the British would be short on certain days because they would have insufficient gas in storage and would be obliged to curtail supplies. We have been in contact with our gas company and produced a report for the Minister last week on this issue, namely, the likely security of our gas supply this winter. People have contracts for the supply of gas. Even though the price of gas is fairly high at present, it will rise further. Some people will be curtailed. That is a matter for the United Kingdom, but we have received assurances that we are all right.

Deputy Eamon Ryan

Which do we curtail first? Do we curtail my cooker or the Poolbeg power station?

Mr. Reeves

In our case, as we have quite a number of electricity plants which may be fuelled dually, we would curtail the gas-fired power stations which could transfer to oil use. Hence, the Deputy will not be cut off.

Deputy Broughan

I have a few brief questions. Questions on energy are also being taken in the Dáil today. I welcome the commission and thank its representatives for the presentation. Committee members always find them to be an extremely valuable input to their consideration of national energy policy.

The committee heard from the Northern Ireland Authority for Energy Regulation this morning. As I told the Taoiseach this morning, by the time the single market comes into effect, he probably will have left office and a new Government may be in power. What preparations are being made? The witnesses stated that the single market was on target to go live and that an memorandum of understanding, MOU, decision must be taken. What does that involve? I presume that both jurisdictions will require legislation. Does that imply a single regulator? Are the commission and its Northern Ireland counterpart involved in a practical unification of our country, in a peaceful and positive manner?

I have a question regarding pricing. While I missed the earlier part of this sitting because of my involvement with two other committees and attendance in the Chamber during the Order of Business, can Mr. Reeves comment on the Hunt report? It appears to be a devastating indictment of the commission's performance in respect of electricity pricing. Basically, the commission stands accused. I repeat that my constituents, both householders and business people, are concerned about the 40% plus increase in electricity prices. The recent 25% increase in gas prices is also fairly devastating for people, even allowing for the increases in energy prices. To paraphrase the Hunt report, are organisations gold-plating their networks?

Does the commission use the wrong economic models when assessing the cost of the activities of Bord Gáis and the ESB? In other words, are householders and businesses obliged to pay for the regulator's failures in this respect? During his last appearance before this joint committee, I told Mr. Reeves that this issue is repeatedly brought to members' attention. I recall that when the commission considered the 25% increase, committee members who inspected its website and examined the EUROSTAT figures did not understand how it could be justified.

Has the commission done any work on the issue of net metering? I agree with Deputy Eamon Ryan's analysis in this respect. If we encourage micro-generation in the future, what is the position in this regard? Some studies from the United States suggested that the meters of people with solar panels flew backwards when they supplied electricity to the grid. I have received complaints about this issue via e-mail and other means from constituents. Why can this not be allowed here? What are the commission's plans in this respect? Does the figure of 6,155 MW include wind power?

Mr. Reeves

Yes.

Deputy Broughan

It is a total figure, including wind. Yesterday, we had an interesting presentation from Denmark concerning conservation. Despite significant GDP growth since 1980, its national energy authority has kept energy levels constant through a number of innovative policies and, apparently, all-party agreement. Does Mr. Reeves see a role for the commission in spearheading similar initiatives, given that it is the most important independent voice in energy?

In respect of the connector to the United Kingdom, Mr. Reeves stated that a public consultation was held. However, is it correct to assume that like Commission for Communications Regulation, public consultations by the Commission for Energy Regulation are not really for people like me or my neighbours? In general, they are for people within the industry. Mr. Reeves noted that there did not appear to be much interest in the United Kingdom for an islands market, as opposed to an all-Ireland market. Would the great majority of businesses and households not be interested in the benefits of a much larger, competitive energy market, which would be stimulated by significant connection to the United Kingdom? While I have other questions, those four or five will suffice at present.

Chairman

Before Mr. Reeves replies, I inform him, as did my colleague, Deputy Broughan, that this committee has received a report from a United Kingdom-based energy consultant, which states that the CER applied a flawed asset valuation, based on a switch from an historic, or original cost valuation of the assets, to an inflation-indexed valuation of the assets. The application of this approach to both electricity and gas networks results in an estimated overcharging of between €120 million and €140 million per annum. Before I quote from the report, I wish to confirm that Mr. Reeves has received a copy of it, as have the Minister, the Opposition and every other Member. Is that correct?

Mr. Reeves

Yes.

Chairman

I wish to quote from this report. The joint committee will include it in its report on energy, thereby making it a public document, with privilege.

The report states:

The CER relied on a flawed asset valuation method applied in the late 1990s by the Department to the transmission network of Bord Gáis. This method is based on a switch from a historic, or original cost valuation of the assets to an inflation-indexed valuation of the assets. This is generally accepted as generating an appropriate asset valuation for regulatory purposes.

When making the switch, however, it is necessary to make adjustments for the investment recovered before the switch for assets that were not longer used and assets that would not be fully used for a period of time. By adopting this method, the CER maintained a spurious consistency with the regulatory method previously developed by the Department. The CER derived network tarriffs that exceeded the levels required. It applied this approach to the Bord Gáis networks when it acquired regulatory responsibility for the gas industry in 2002 even though there was much less reason to generate additional revenue for these networks. The application of this approach to both electricity and gas networks accounts for the estimated overcharging of between €120 million and €140 million a year.

This is merely a flavour of the allegations and arguments presented in that document. If Mr. Reeves feels he needs more time to consider them, he may do so.

The committee intends to invite Mr. Hunt to appear before it and set out his reasons for making the allegations in his document. The committee would welcome a detailed response to this document so it can consider it when it engages with Mr. Hunt in public session.

Mr. Reeves

I will deal with the questions raised by Deputy Broughan, Mr. Tutty will deal with the allegations raised by Mr. Hunt and Ms Finn will deal with the issue of prices. We have been working very closely with our colleagues in Northern Ireland for over a year, as Mr. MacCann pointed out this morning. We are carrying out matters jointly and have a website —hhtp://www.allislandproject.org — which sets out all the work we have done. Douglas McIldoon and I signed a memorandum of understanding in August 2004, setting out the things we intended to do in the context of the intergovernmental framework paper.

The first measure we targeted was a single energy wholesale market, which we dubbed the SEM. We strongly emphasised the word "single" — it was to be one market for both parts of the island. Our slides set out what we decided to do. The matter is progressing and we are on target, despite difficulties encountered in areas like resources and finance. We have diverted a considerable amount of our resources to this issue. We are now working out what our next initiative will be once we hand over the implementation of SEM to the two national grids in February 2006. I can give the committee more detail at any time and am happy to discuss the issue on a bilateral basis.

The possibility of having a single energy regulator has also been mooted. The second-last bullet point on page 14 of the slides discusses the possibility of a single regulatory authority to govern the electricity and gas markets. It is easy to call for a single energy regulator but the Attorneys General from both jurisdictions must work out what authority the regulator should have. Currently, there is a question mark over how to deal with a dispute in the new single market when the person who is disputing has a licence in Northern Ireland.

A previous speaker asked Mr. MacCann this morning whether a person here could buy electricity from Northern Ireland. The answer is "Yes" and "No". A supplier could buy electricity from Northern Ireland but a consumer would be forced to buy it from a supplier licensed here. Mutual recognition, effectively a single licence, will be part of the all-island market so people will be able to buy electricity from Northern Ireland in two years' time. In due course, there should be a single regulator, which would be a momentous achievement. We have the full support of the relevant Departments. The joint steering group, consisting of the Department of Communications, Marine and Natural Resources, the Department of Enterprise, Trade and Investment in Northern Ireland and the energy regulators from both jurisdictions, is overseeing this matter. Sustainable Energy Ireland, which looks after the energy efficiency and renewables aspect of this issue, periodically assumes a role in the steering group. Coherent and cohesive work is ongoing.

We have not yet progressed to the issue of gas as it is a question of time and resources. The programme is set out in the framework document, which was produced on 22 November 2004, and we have made progress in this regard.

Ms Finn

Mention was made of an earlier discussion relating to regulatory authorities from Northern Ireland and the increases in electricity prices that have taken place over the last four or five years — somewhere in the region of 40%. Nobody wishes to take a hit on this. Prices in Northern Ireland were relatively flat and were, therefore, much higher than prices here. Prices in both jurisidictions have converged over time. An examination of urban customer consumption patterns reveals that prices here are approximately 4.5% less than those in Northern Ireland so they have converged over time. The vast majority of price increases in this period have been driven by the cost of energy, as opposed to the cost of networks or public obligations of supply.

There has been a significant catch-up investment programme in networks here, which is levelling out, but investment is still needed. Approximately 34% of the 40% price increases is attributable to energy prices, as opposed to network prices.

Deputy Eamon Ryan

Mr. Reeves argued that these gas plants would be the way forward for the next 20 years, after which we would switch to something new. If the peak in oil production occurs and gas prices are linked with oil, following the strategy outlined by Mr. Reeves exposes us to a doubling of gas prices. We are utterly dependent on imported fossil fuels and Northern Ireland is even more dependent on them. If, as Mr. Reeves argues, the best price for gas and electricity power generation is now 7.3 cent per kilowatt/hour and we have renewables which are cheaper, why are we not shifting dramatically towards renewables because it is the only way of giving Irish customers cheap electricity? Why are there restrictions on the development of renewable energy when it is the cheapest form of electricity we can get?

Ms Finn

We do not have restrictions on the development of renewable energy. We face significant challenges in connecting the amount of applications we have, particularly for wind because it is one form of renewable energy. It is part of a portfolio of renewable generation, which is very important for this country. The CER recognises this and believes it is important that it is taken into account in the mix of electricity generation we have. Mr. Reeves did not say that we will look solely at gas fire generation for the next 20 years and then move on to something new. This transition must take place over time. The fact that particular renewable technologies are becoming more economically viable is a key turning point in terms of them becoming more commercially viable and achieving greater penetration of the market.

Deputy Eamon Ryan

I see information about new gas plants in this document but nothing about new renewables.

Ms Finn

New renewables are the 2,500 megawatts of applications in the queue, which were mentioned earlier in our presentation. If we only add 2,500 megawatts of wind energy to the system, we must plan for the day when wind energy is not available through the investment in interconnection we spoke about or investment in additional plant. Deputy Eamon Ryan mentioned some very useful types of plant, particularly biomass, which provide a different profile. The profile will change over time. Developers, rather than the central planner, build plant in this country.

Deputy Eamon Ryan

Austria, Denmark and Spain are far in advance of us and are at present engaged in the process.

Ms Finn

The development of policies in other countries has been different but one of the key factors they possess that Ireland does not is interconnection. We still have a relatively isolated system. The information about interconnection given by Mr. Tutty is very important because until we are part of a wider grid, we will always face that constraint.

Chairman

We have spent a considerable amount of time on this issue. Deputies Fiona O'Malley and Durkan and Senator MacSharry wish to ask questions. Time is pushing on. Questions are to be answered in the Dáil at 2.30 p.m. and we have been here since 10 a.m. We all have much work to do today after this meeting.

Deputy Durkan

I do not wish to interrupt but it is extremely difficult for Front Bench spokespersons to attend committees during the Order of Business or while questions are being addressed.

Chairman

Yes.

Deputy Durkan

It is very difficult for us to participate if we have dual or triple engagements and parliamentary party meetings.

Deputy Broughan

We must also conceive hard questions for the Ministers, which is important.

Deputy Durkan

When they are allowed to answer.

Chairman

We are at the mercy of the situation in terms of rooms, times and staff. We must move on very quickly.

Deputy F. O’Malley

May I ask a question?

Chairman

Yes but I wish to get answers to Deputy Broughan's question and then open the floor to the last three speakers, including the Deputy. Will our guests keep the Mr. Paul Hunt issue until the end?

Mr. Reeves

We will do whatever the Chairman wishes.

Chairman

Our guests should put their views on the record.

Mr. Tutty

We do not agree with the thesis put forward by Mr. Hunt that the assets have been overvalued for both ESB and Bord Gáis. The same arguments apply in both cases. Mr. Hunt argues that under the previous system of historic costs, they were recovering money in order to counteract depreciation, etc. When we introduced indexed historic costs, we ultimately allowed them to recover the same revenues a second time.

Mr. Hunt's argument is even if this did not happen it is irrelevant that before we began regulating them, ESB and Bord Gáis were operating in a commercial type operation, in which they were able to charge whatever was needed to recover the full costs of their investments and provide for future investment, as he stated in his latest document. However, we know this did not happen and that there were severe limitations on their abilities to increase prices over that period. For a long time there were no price increases. As such, they were not operating in the system of his ideal scenario.

When we took over regulation, we valued the assets on an indexed historic cost basis as at that date and applied our regulation to them. We applied the rate of return to those assets over the period on the basis that this was right and it was the proper valuation. We set our prices on this basis. In his latest paper, Mr. Hunt seems to argue that we did this partly because the ESB is constrained under financing. He says it effectively has a legal requirement to borrow only 50%. I am unaware of any such restriction on the ESB and it was certainly not a factor in our determination of the regulatory asset base.

In setting a rate of return, we must make some assumptions about the gearing ratio between debt and equity as the return will be different on both of them. We are certainly not being forced to raise the asset base because we could not give the ESB an adequate rate of return in any other way as he seems to say. We do not agree with his basic thesis. We believe our determined asset base was proper. In our recent five year review of the ESB, we made a number of small amendments to the base that did not affect the fundamental issue Mr. Hunt has raised.

Chairman

Did the ESB and Bord Gáis stop depreciating their assets in the years they received no increases or did they continue year on year?

Mr. Tutty

They were depreciating their assets from an accounting point of view.

Chairman

Year on year.

Mr. Tutty

Yes.

Chairman

In order to be helpful to the committee, which cannot ignore the document submitted to it along with that of our guests, could Mr. Tutty give a detailed response to the document setting out the position of the CER on this matter so that we can evaluate it or have it evaluated?

Mr. Tutty

Yes.

Deputy F. O’Malley

I will return to the security of supply issue. Perhaps I am wrong but I have the impression that our guests are not worried we have a 90% dependency on imported fuels. Would this be unfair to say?

Mr. Reeves

"Worried" is an interesting word. What can we do about it?

Deputy F. O’Malley

It is the job of the CER to ensure something is done.

Mr. Reeves

We have almost beaten to death every windmill in Ireland. We have examined and debated the possibility of developing the renewable resources area. At present, wind is one of a few natural resources available to Ireland. Another is peat, which would not be the Deputy's favourite fuel but is mine. After that, we are left with our gas fields. We do not have any other native sources of fuel.

Deputy F. O’Malley

There are plenty of opportunities, which the CER is required to address. It is difficult to know as pricing is an important issue for the CER also but perhaps the single most important matter for it is security of supply, which is critical. Dependence is growing and the contribution on how we are importing from the United Kingdom was alarming. We were told of yesterday's amber alert, which was not a cold day. We are facing into December, when people will put Christmas lights up everywhere. I am worried about what this date in January will be like and that we are close to having a red alert. What is the CER's responsibility in the event of a red alert?

Mr. Reeves

On an operational basis, we do not have responsibility. The responsibility of operating the system in a safe, secure and reliable manner, as stated in legislation, rests with the system operator.

Deputy F. O’Malley

The operator will have failed were we to have a red alert.

Mr. Reeves

We have taken actions to keep this peak down. We have a winter peak demand reduction scheme, which has saved us in the order of 200 megawatts. Many small plants and factories around the country can be switched on at short notice, which is called a power save scheme. Some plants can be driven a little harder for the few hours that are needed. The people operating the system have a list of other people who would be prepared to turn off so that we do not run out of power.

Our issues of concern are more long-term. The dependence on gas and imports is very high. Indeed, the dependence on imports in Europe as a whole is as high as ours and is of grave concern to the European Union because much of its gas comes from Russia. At least ours comes from the North Sea with local contracts here. This is not just an issue for ourselves.

Deputy F. O’Malley

I am aware of that but the EU's dependency on imported fuels is not as high as here. We are located at the end of any gas pipeline. We are particularly vulnerable.

Mr. Reeves

We are at the tail end, which adds to our costs. It is the reason we have two gas pipelines. As Mr. Tutty said, the issue of the single 20 mile section in Scotland must be addressed. We try to have physical remedies to these matters, such as enough power stations, and a diversity of fuels. Nobody will thank us for building another peat station but, as we do not have enough peat to do so, it will not happen. Should we build another coal station? Should we try to get clean coal? What should we do?

Deputy Eamon Ryan

If we are 90% dependent on fossil fuels, what percentage could we achieve via renewable resources by 2020 and 2050? Has the CER examined these prospects?

Mr. Reeves

We have not examined 2050.

Deputy F. O’Malley

What about 2020?

Mr. Reeves

The 2020 vision paper is being consulted on, as a result of which targets will be set, generally by Government. The commitment of 13.2% by 2010 is a Government target and we are obliged to aim towards meeting it.

Deputy Eamon Ryan

If it is not CER's responsibility to address our 90% dependency on fossil fuels, is it the responsibility of the Government to decide policy on this matter? If the CER can only worry about this and not do anything, who should do something about this?

Mr. Reeves

It depends on the policy objective. There are three policy objectives in energy, which are incompatible. Finding the balance is difficult. The environmental objective is a key matter for Deputy Eamon Ryan. IBEC wants competitiveness and cheap products and the third objective is security of supply.

Deputy F. O’Malley

I have one final question. I have been sitting here all day.

Chairman

I must allow Senator MacSharry to speak.

Senator MacSharry

We are jumping from Billy to Jack and I do not know how the delegation is following as we move from one subject to another. After Deputy F. O'Malley's question, I will ask one question.

Deputy F. O’Malley

Mr. Reeves mentioned the difficulties suppliers have with grid connections. What does the CER do for people with grid connections?

Mr. Reeves

A process of appeal exists if somebody is not happy with the offer.

Deputy F. O’Malley

The CER keeps talking about people in the queue for connections. Last night we heard of people seeking to solve our overdependency on imported fuels who cannot get connected because of problems with the grid. Problems with the grid should be a priority for the CER.

Mr. Reeves

I want to make a point on equity. The State company has no rights above anyone else and someone who has made an application ahead of Bord na Móna is entitled to have the application dealt with first.

Deputy F. O’Malley

I ask Mr. Reeves to answer my direct question. What does the CER do for people who have difficulties with grid connections?

Ms Finn

We went through this matter in detail. In the case of individual disputes, these are dealt with and an appeal process exists. With a significant increase in applications for renewable connections to the grid, mainly wind, we have worked to develop a system, group processing, that will process these quicker than the old queueing and interacting system. Mr. Tutty deals with the connection to the grid and he can repeat what he has already said, if the Chairman wishes.

Deputy F. O’Malley

I do not wish the CER representatives to repeat themselves. Does the CER provide a forum for people who have problems with the grid?

Ms Finn

Yes.

Deputy F. O’Malley

How fast does the CER connect the person after being made aware of the problem?

Chairman

I raised this issue and there were seven or eight questions on this matter on the record of the committee. We must proceed and we can provide Deputy Fiona O'Malley with a transcript of the debate. We must continue as I have been sitting here since 10 a.m.

Senator MacSharry

I have a supplementary question on the seven year rule. When can we expect progress on this? Most of the country is giggling at the north west but we need progress.

Mr. Tutty

It will happen very soon, in a matter of a few weeks. I am not certain when a document will be issued but I hope it will happen before Christmas.

Senator MacSharry

In Northern Ireland the regulator controls the amount the network operator can charge customers to the extent that all investment in the network comes from profits. In the Republic, the reverse is the case. The ESB owns the network and most of the generating capacity. Most of its profits are made from the network, where it has a monopoly. Can the CER change this so that consumers receive lower bills by forcing the ESB to invest in the network from its profits rather than by charging additional costs to the consumer?

Mr. Reeves

So far investment in the ESB has been paid for in equal parts by profits and borrowing. There is not enough money in the ESB to undertake the extensive investment programme. There is a significant borrowing requirement and the chief executive of the ESB refers to increasing debt. This will continue for quite some time until we have a significant investment programme, which between transmission and distribution, will be approximately €3 billion over the next five years. Profits will not be as high as that so borrowing will be necessary to meet that programme.

Senator MacSharry

Mr. Reeves's answer is "No".

Mr. Reeves

It is not as simple as that. If this programme is to be paid for from profits there will be a smaller network. Profits will not be as high without a bigger network. It is necessary to borrow to invest.

Senator MacSharry

Is it possible that a higher proportion of the investment come from profits rather than two equal parts? It has been managed in Northern Ireland. Is it the role of the CER to increase the proportion of investment from profits rather than preserving the status quo?

Mr. Reeves

We do not view it on that basis, we always view it on a cash basis. The shareholder takes a considerable part of ESB profits.

Senator MacSharry

The CER is not responsible for the ESB's profits.

Mr. Reeves

The CER has a duty to all participants in the market as well as to the consumer.

Senator MacSharry

Is the bottom line of the ESB of major concern to CER?

Mr. Reeves

We do not want to drive the ESB out of business.

Senator MacSharry

Is it fair that 50% of the investment should come from profits or should this increase to 75%?

Mr. Reeves

If it is increased to 75% equity and 25% borrowing the price will increase as people expect a higher return on equity than on borrowing.

Senator MacSharry

A lot of regulation is in favour of the ESB. We retrofit the consumer into whatever suits the ESB.

Mr. Reeves

I reject that.

Senator MacSharry

The seven year rule is being examined. I suggest the investment programmes should also be examined because Northern Ireland has demonstrated it can pay for an investment programme from profits. Why is the CER not leading from the front and encouraging the ESB and others to move in this direction?

Mr. Reeves

There was almost no investment in Northern Ireland's transmission network for many years. From the proposals put to us at the last round of talks to which Mr. Tutty referred, the ESB has had a reduction in revenue of €1.4 billion. This includes a significant amount of profit over the next five years. We must be balanced and consider the right programme to create the right effect for consumers.

We must also consider how to provide a better network in the west and this must be paid for. Balancing competing objectives, such as green concerns, competitiveness, networks in the North, and wind, is complex. If there is an increase in wind-generated energy Deputy Eamon Ryan will consider it a success but others will object because it increases prices. We must try to balance the competing objectives and we have tried our best although nobody might agree that we have found the best solution.

Deputy Durkan

A week ago, IBEC presented a graph to the effect that energy costs in Ireland are the highest in Europe. A debate ensued on whether costs were the highest or the second highest but I do not care. Why must we be in that league? Some blame costs on the regulator, others on the ESB, Bord Gáis and other contributors to grid, and others blame costs on the Government. To whom should major industries who are major energy consumers, such as Intel and Hewlett Packard, address grievances?

The CER mentioned the shareholder in reply to Senator MacSharry and I agree that shareholders are important. Experience has shown that where the shareholders' interests come before the consumers' interests the whole economy will suffer. I get the impression that perhaps too strong an intention to look after the shareholder exists. If the shareholder does not look after the consumer, there will not be a shareholder. The value of the business will go down.

The Hunt report has been referred to on a number of occasions and we will deal with it again. It appears to suggest that an artificially high valuation was put on the infrastructure in both Bord Gáis and the ESB by suppliers. In some cases that was on the basis that the infrastructure required upgrading in any event and the cost was based on an upgraded or state of the art infrastructure. I have a number of questions following on from that. How does our network compare with best practice in Europe? Mr. Reeves's predecessor is on record as stating that further encouragement would not be given to the wind generated electricity industry for a certain period of time. I presume that is in the absence of an adequate interconnector. If that is not the reason, what is? That had a negative impact on those interested in providing alternative energy.

A delegation from the west was before the committee yesterday. It indicated that a natural gas pipeline would pass through large swathes of the countryside but nobody would be able to tap into it because of a decision taken. A debate exists as to whether the service provider, the regulator or Government is responsible for it. Let us have clarification on that.

A number of parliamentary questions I asked on those issues were refused today by the Ceann Comhairle, I assume on grounds of validity. The questions were on the fact that electricity costs to industry here are extraordinarily high by international standards, the reasons for that and the steps that the Minister would take on it. They were refused on the grounds that the Minister does not have official responsibility to Dáil Éireann for these matters because they fall within the remit of the Commission for Energy Regulation. If that is the case, I will ask parliamentary questions of the regulator in the future. I understood policy was dictated by Government and not by the regulator. I will seek clarification on that shortly because the Opposition has a duty to ask questions and receive answers. From whence they come I do not mind, but answers we will get.

We are told we have inefficient and unreliable electricity generating plants in this country. What are the plans to upgrade them? Why are international or national investors not brought into the arena? Why do they not leap into the limelight themselves? Is there a reason they do not do so? Reference was made to the "amber gambling" situation during the past few days. I have bad news on that because if we gambled on amber during the past few days, we will gamble much more according to a long-term weather forecast for next January. Will the reserves meet requirements?

Who should control the grid? Alternative energy suppliers state that the ESB and Bord Gáis have too much control over it. Outside of here, I have made proposals on future policy direction in that area. According to the Ceann Comhairle it is the regulator's job to resolve an issue where an incumbent causes difficulty for others to enter the grid. What are the regulator's proposals to resolve it?

Will major industry suppliers manipulate energy prices in an all-island energy market and if so, to what extent? This returns to the matter of the cost of energy to domestic and industrial consumers. The committee heard the views expressed by IBEC. Energy is one of the major contributory factors to creating a situation whereby many industries, especially labour intensive ones, relocate to economies with lower wages, lower energy costs and other advantages. I would like those questions answered.

Chairman

I hate to be the bearer of bad news. I am advised we must close the meeting because the broadcasting unit is required at another committee meeting. Will Deputy Durkan agree to the Commission for Energy Regulation sending him answers to those questions? We will provide the delegation with copies of the questions from the transcript.

Deputy Durkan

I will be delighted to receive the answers from the regulator or the Ceann Comhairle. I realise the regulator does not need to seek election.

Chairman

We cannot proceed unless a transcript of the meeting is taken. I thank Mr. Reeves, Ms Finn and Mr. Tutty for appearing before the committee. I know they will regard those questions and all issues raised.

The joint committee adjourned at 2.15 p.m. sine die.